Bonus applies to all faction units in same quadrant. You can have as many flags as you want in a base but the bonus is only applied once. The + 1 max speed stacks with command tower (total +5 max speed).
The first bonus (<1 to hit) will ensure that no matter how small a base is, a flag will always be present.
The + 5% merit chance is an attempt to bring back fully built node bases for node meriting (old school)

While the description implies that the effect of a flag should be a negative one on your enemies not a positive one on your self, I thought this is better. Description can be changed to something like 'Inspires your troops' or well modify the effects or something.